Rationale

 The ratings reaffirmation continues to factor in Satin Creditcare Network Ltd.'s (SCNL) established presence in the Indian microfinance landscape as it is one of the largest players in the sector as per portfolio size. Further, its healthy geographical diversification, experienced management team, and good systems and processessupport its credit profile. SCNL had witnessed a steady growth in its assets under management (AUM) till March 2021. However, its disbursements were impacted by the Covid-19 pandemic-induced disruptions and it report an annualised degrowth of ~21% in its AUM to Rs. 6,123 crore as on December 31, 2021 (Rs. 7,275 crore as on March 31, 2021). On a consolidated basis, SCNL and its three wholly-owned subsidiaries1 reported an AUM of Rs. 7,218 crore as on December 31, 2021 compared to Rs. 8,380 crore as on March 31, 2021, witnessing a decline of ~14% (annualised). Nevertheless, ICRA takes note of the improvement in disbursements in Q2 and Q3 FY2022 with further improvement expected in Q4 FY2022. The ratings also factor in the company's geographically spread operations, its diversified funding profile and strong liquidity position in the form of on-book liquidity and unavailed sanctioned lines. The ratings, however, remain constrained by the deterioration in the asset quality because of the disruptions caused by the pandemic. SCNL reported gross non-performing assets (GNPA) of 8.6% as on December 31, 2021 (8.4% as on March 31, 2021) compared to 3.3% as on March 31, 2020. ICRA notes that the GNPA had increased significantly during the pandemic. Moreover, a large part of the loan book was restructured under the Reserve Bank of India's (RBI) Resolution Framework for Covid-19- related stress, the share of which stood at ~17% of SCNL's standalone AUM as on December 31, 2021. However, the risk is mitigated to some extent by the provision coverage ratio (PCR) of ~69% on the GNPAs and more than 20% on the restructured book. With the deterioration in the asset quality and elevated credit costs, the company's profitability profile remains weak. It reported a standalone loss of ~Rs. 19 crore in 9M FY2022 vis-à-vis a net loss of Rs. 14 crore in FY2021. On a consolidated basis, the reported loss for 9M FY2022 was higher at ~Rs. 36 crore as TFSL reported higher losses on account of elevated credit costs and a decline in its operational efficiency. However, ICRA takes note of the improvement in SCNL's pre-provision operating profits (PPOP) in Q3 FY2022 over Q2 FY2022 and expects the trend to continue in Q4 FY2022, which shall provide adequate cushion for absorbing incremental expected credit costs. The ratings also factor in the risks associated with the unsecured nature of microfinance loans, the marginal borrower profile, which is susceptible to income shocks, and the political and operational risks inherent in the microfinance business. Moreover, there is scope for improvement in the geographical diversification of operations. The outlook remains Negative given the high delinquencies, the pressure on profitability and growth in light of the pandemic, and the continuing stress on the asset quality metrics because of the pandemic. Consequently, the credit cost is expected to remain elevated in FY2022 as well, which would keep the profitability weak. SCNL's ability to improve the asset quality, control the credit costs and improve the profitability would remain a key rating monitorable.